Determining whether a contract has been formed

Courts look for a clear and unequivocal offer which is matched in return by a clear and unequivocal acceptance when determining whether a contract has been formed. The key issue here is determining whether an offer has been made from Alf to Bert, or whether it has merely been an invitation to treat. An invitation to treat is an expression of willingness to enter into negotiations which may lead to the formation of a contract at a later date.

An offer is a statement which clearly and objectively indicates that the offeror is prepared to contract on the terms specified in the statement as stated in the case of Gibson v. Manchester City Council [1] .

In this case, there is no communication that Alf would be bound by the communication if Bert indicated that he would be interested in the goods. This is shown as there is no binding communication as: firstly, the price of the goods is not stated in the communication. Secondly, no list of goods is given, or even specifications of what these ‘goods’ might imply. Thirdly, the quantity is not specified either. With the lack of these factors, the communication from Alf is shown to be ambiguous and it could be argued that the proposition is incomplete. It is shown that in this case, Alf has sent Bert an invitation to treat, in which, if Bert was interested in buying the goods, he would have then to contact Alf by the stated day and time, upon which, these specifications would presumably then be discussed.

However, in the American case of Marble v. Standard Oil Co. [2] , it is stated that terms could be included in an offer by implication, so the price of the goods mentioned could be linked to the standard market value, and it could be assumed that upon acceptance, Bert would intend to pay the prevailing price, and thus it could be argued that Alf made an offer to Bert. As this is an American case, it would not be a binding precedent on British courts and can only be presented as a persuasive authority.

If this scenario was indeed an invitation to treat, Alf would be able to do what he wished with the goods in all three scenarios as there is no legally binding contract between him and Bert.

As the following situations indicate an “acceptance" on Bert’s part, it will be assumed that Alf made an offer to Bert.

(a) Bert’s machine being faulty resulted in Alf not receiving communication of the acceptance.

In the case of Entores v. Miles Far East Corporation [3] , the key principle is that an acceptance by telex has no effect until it is received by the offeror. Denning LJ in his judgement stated that if there was a case where the offeror through no fault on his part does not receive the acceptance, despite the sender reasonably believing it has been communicated when it has not, there is no contract formed.

This is reinforced in the case of Brinkibon Ltd v. Staghag Stahl GmbH [4] , where it was held that acceptance would be made upon reading the telex, and that administrative inefficiency is not a valid excuse.

In this scenario, no contract would have been made between Alf and Bert as Alf did not receive communication of Bert’s fax through no fault of his own (Entores) and Bert’s machine being faulty was a problem that he himself had to discover rectify, and is not a valid defence that it was not his fault, but perhaps a fault of the machine that Alf did not receive the communication (Brinkibon).

(b) Here Bert sent his reply before the stated deadline, but Alf was not aware of the communication as his telex machine had run out of paper.

Despite the principle in Entores mentioned in scenario (a) that an acceptance by telex has no effect until it is received by the offeror, Denning LJ also stated in his judgement: “But, suppose that [the person accepting the offer] does not know that his message did not get home. He thinks it has. This may happen if the listener on the telephone does not catch the words of acceptance, but nevertheless does not trouble to ask for them to be repeated... the man who sends an acceptance reasonably believes that his message has been received. The offeror in such circumstances is clearly bound, because he will be estopped from saying that he did not receive the message of acceptance. It is his own fault that he did not get it." [5] 

Alf would thus be bound by this, as the fact that his telex machine had run out of paper was his own fault, and again the case of Brinkibon holds that such administrative inefficiency is not a valid defence in such scenarios.

(c) Bert accepted the offer before the deadline but the offeror had already sold the goods to a third party.

An offer can be revoked by the offeror at any time before acceptance is communicated, but this revocation is only effective once it has been communicated to the offeree. This is stated in the case of Byrne v. Van Tienhoven [6] .

This is reinforced in the case of Henthorn v. Fraser [7] , when the offeror withdrew the offer after the acceptance was posted to him (under the postal rule, acceptance is treated as communicated when the letter is posted), and that a contract had been formed.

Here, it is clear that revocation of the offer has not been communicated to Bert before Thursday afternoon. From the two cases above, it is clear that a contract has been made and thus, Bert would thus probably be entitled to specific performance of the contract which has been formed. (Henthorn)